4 Reasons Why Procurement Departments Don’t Fully Use Strategic Sourcing Suites

Posted 12/08/2016

In my last blog I looked at the issue of convergence of the marketplace for Strategic Sourcing Suites as they seek to cover more and more of the end to end process, I also posed the question, why aren’t Customers making full use of all this feature-rich functionality?
 

I think there are a number of reasons, which can be boiled down to four: 

1.     Cost 

The costs of licensing and then implementing a full Strategic Sourcing Suite, in a large organisation, are considerable. Not many CPO’s have a spare €million or so lying around in their budgets. 

Most CPO’s recognise the potential benefits of implementing a full suite, but need to target their investment where it will deliver the biggest bangs for their bucks; investing in an auction tool, whether on a license or pay as you go basis, will generally show a clear positive ROI. This is not so immediately apparent with many of the other modules – perhaps explaining the lower levels of take up of these modules. 

There is also evidence that implementing a Strategic Sourcing or Category Management Process is what delivers the biggest step change in performance and that Strategic Sourcing suites can best be seen as an (expensive) means of reinforcing use of the process. 

2.     Need 

The slogan “Keep the Ice Cream Frozen” is certainly valid in Transaction Management, where the same core, master data, with the later additions of supplier and pricing data, is used and re-used throughout the process. Re-entering all this at each stage of the process takes up time and resource, thus providing good reasons for investment in integrating these processes and systems. 

I’m not so sure that the same is true of Strategic Sourcing; the process here seems to be more about bringing together data from diverse sources and locations to create a unified strategy document and then using suitable tools (i.e. Auction or RFP) to implement that strategy. Many companies get by using essentially manual processes for strategy development and then use a Sourcing or Auction tool at the implementation stage. 

Contract Management, although important, is another area where Sourcing Teams or Supplier Managers frequently use a separate application, often as part of the ERP or Transaction Management system to do this so that relevant data can be used in the Purchasing and Invoicing processes. 

3.     Uneven Quality of Modules 

Another pertinent factor here is that in many of the leading suites, some of the modules are simply not up to the level of customer expectations. The drive to offer extended functionality has forced providers to invest in new modules, for which they often get limited sales and returns, whilst older modules are left relatively under-developed with aging functionality. User interfaces in some applications look very dated, as if they are largely unchanged in the 15 or so years since their introduction.  Some customers report their products to be difficult to use and find that the integration between modules is not as seamless as claimed. This tends to decrease customer satisfaction and discourage making further use of the products available to them.  

Although most of the leading vendors have promised to introduce improved interfaces, the current high levels of investment in, and perceived priority of introducing Mobile Apps, is again, diverting their attention from their existing platforms. 

4.     Organisational Complexity 

Most large companies didn’t start out that way! They have grown through acquisition and merger and this often means a diverse mix of processes and systems and a variety of charts of accounts across the business. Some companies are willing to invest in new Corporate/Global Finance or ERP systems to try and rationalise this, but Procurement is often an afterthought in such calculations. I have also seen some companies implement systems such as Ariba to act as a “unifying overlay” on top of their existing infrastructure, but cost is again a limiting factor and often these implementations are limited to parts of the transactional P2P process rather than Sourcing. In most cases, Procurement seems to follow Finance rather than lead it. 

What does all this mean? 

We have seen that prospective customers of these suites are cautious in their approach and few wish to commit to high-cost purchases and/or large-scale implementations and even fewer wish to be guinea pigs for new, unproven modules. 

This doesn’t mean that they don’t aspire to adopt world-class end to end processes, however they look for lower-cost means of embedding these in their organisations. 

This also implies that selecting elements of the process to invest in based on “bangs for bucks” and either cherry-picking modules or selecting niche-players, to achieve this may be a sensible approach. What do you think? 

I will look further at these implications in my next blog!

 


Tagged by topic: Procurement Technologies

  by Mark Eveleigh

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